The development of the telecom market is a critical part of a country’s social welfare and economic growth. Markets were initially structured with an ILEC (incumbent local exchange carrier) owning the fixed-line copper local loop and new entrants lacking access to the infrastructure. Many regulatory reforms have taken place over the years, especially in developed countries, to incentivize the sector, promoting competition and investment at affordable prices. One of the policy instruments developed to facilitate the growth of telecommunications is local loop unbundling (LLU). LLU refers to the process in which incumbent carriers lease, wholly or in part, the local segment of their telecommunications network to competitors. In the beginning, voice services were the target of this policy, but now, the focus is on broadband and Internet access and the impact it has on the development of an economy.
ILECs oppose LLU because they believe that new entrants will behave as free riders and not invest in network capabilities, leaving all the associated costs and investment to the ILECs. New entrants object, stating that they can’t replicate ILEC’s copper local loop because of economic restrictions and because they are unable to offer certain telecom services, such as xDSL, without access to the local loop infrastructure, thus allowing the incumbent to monopolize the respective markets and stifle innovation. They point out that under current LLU pricing models, the incumbent is often guaranteed a fair price for the use of its facilities including an appropriate return on investment.
They also point out that alternative access technologies, such as wireless local loop, have proven uncompetitive and impractical. At the moment, current technologies have not matured sufficiently to be commercially viable to compete with wired access technologies that are part and parcel of the fixed-line copper local loop.
Given the unequal infrastructure conditions for new entrants and the still-low penetration of broadband services, Pyramid Research believes that local loop unbundling will promote and enhance competition, broadband penetration and economic welfare in emerging markets lacking this reform.
This report examines the impact on private investment, service penetration and prices that could result when the privatization process of the telecom sector lacks a regulatory framework promoting competition among the participants. It also examines how LLU could be used to mitigate those unequal conditions. Finally, case studies of three countries — the US, UK and India — look at the strategic challenges and difficulties involved in reform implementation.
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